Corporate welfare inquiries not a good barometer of success

On public television’s weekly Off-the-Record program last week, state Rep. Mike Shirkey, R-Clark Lake, discussed Michigan’s new right-to-work law as being successful based on business expansion inquiries made to the Michigan Economic Development Corp., the state agency that awards special tax breaks and subsidies for corporations and developers. Yet both history and employment data shows that kind of information says little about the economy.

The economy is dynamic, with a vast amount of job creation and loss constantly occurring. In the most recent quarter of data, Michigan’s economy added 217,038 jobs and lost 200,728 jobs. The state added one out of every 16 jobs in the quarter and lost one out of every 17 jobs. Similar rates of job churn occur every month, year-in, year-out, here and all across the country.

Even when Michigan’s economy is improving, there are jobs lost somewhere in the state. It just means more new jobs are being created than are disappearing. Even in bad times, some businesses are opening or expanding, and even in good times some are closing.

For this and other reasons, the number of MEDC announcements claiming credit for jobs moving to Michigan tells us nothing about the state economy. During that three-month period cited above, the agency announced deals accounting for just 2,185 new jobs, or a mere 1 percent of the 217,038 jobs created in the state. Moreover, based on past performance, only 29 percent of those 2,185 jobs will materialize.

The previous decade provides a good case history demonstrating how irrelevant incentive programs targeting particular firms or industries really are to the economy. Michigan saw a massive increase in “economic development” programs during the 2000s. The number of credits awarded by the state’s then-flagship program, MEGA, increased from 33 projects in 2000 to 110 projects in 2010. During this period other programs were created including a “Tech TriCorridor Initiative,” a “21st Century Jobs Fund,” open-ended subsidies for film producers and a myriad of other industry du jour attraction policies.

Despite all this government economic activism, Michigan lost a net 813,100 jobs from 2000 to 2010.

The figures released by government economic development agencies amount to little more than accumulations of anecdotes. They tell us nothing about the direction of a state’s economy or whether certain policies are effective. In contrast, while broader statistical measures don’t give politicians ribbon-cutting success stories to boast about, they do provide reliable indications of where we are heading, and over time, of what works.

An econometric examination of the effects of right-to-work laws in different places over different time periods reveal a significant and positive relationship between this policy and growth in state employment and personal income. This is how economic progress should be measured: In changes to the livelihoods of residents. The number of press releases generated by a state’s economic development agencies tells us nothing about that state’s economy.

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